FeaturedNationalVOLUME 14 ISSUE # 23

Power sector losses

The National Electric Power Regulatory Authority (NEPRA) has cast doubt on a plan of the government to eliminate circular debt of the power sector by the end of the next year. The distribution companies suffered more than Rs45 billion in the last year, which shows the problems are deep-rooted and may take decades to eliminate.

 

According to a performance evaluation report of the power distribution companies for fiscal year 2017-18, they contributed a loss of more than Rs45 billion during the year on account of transmission and distribution losses whereas they failed to recover Rs78 billion. In the report, the National Electric Power Regulatory Authority (NEPRA) revealed that none of the distribution companies, except for the Islamabad Electric Supply Company (IESCO), could meet the regulator’s expectations. Transmission and distribution losses of the Peshawar Electric Supply Company (PESCO) were 38.1pc against 27.62pc allowed by the NEPRA, which were already set higher than the other companies.

 

For recovery of bills, the Multan Electric Power Company (MEPCO) and the Islamabad Electric Supply Company (IESCO) performed better whereas the Quetta Electric Supply Company (QESCO), with a recovery rate of 46.1pc, stood at the lowest level among all the distribution companies in FY18. On the other hand, K-Electric (KE) continued to take the lead by reducing the losses from 25.3pc in 2013-14 to 20.4pc in 2017-18. Over the years, the performance of the Peshawar Electric Supply Company (PESCO), Faisalabad Electric Supply Company (FESCO) and Hyderabad Electric Supply Company (HESCO) remained poor. The report suggested that the losses could be reduced further by adopting automated metering infrastructure.

 

Recovery rates of the QESCO, IESCO, Gujranwala Electric Power Company (GEPCO), FESCO, LESCO and MEPCO fell whereas PESCO, Sukkur Electric Power Company (SEPCO), HESCO and KE showed a marked improvement in recoveries in the past three years. The report suggested that through good governance and management techniques, the distribution companies could further improve recovery rates. SEPCO’s performance was the worst on the average interruption frequency index and average interruption duration index, with the number standing at 568, followed by MEPCO and HESCO, with 316 and 180 respectively. On the other hand, PESCO, LESCO, KE and QESCO significantly improved their performance.

 

In comparison to 2016-17, PESCO, FESCO, LESCO, QESCO and KE showed improvement in the provision of new connections in 2017-18. However, the IESCO showed zero pendency for new connections, which was far from reality. The GEPCO was ranked the worst with 11 hours of daily loadshedding, followed by QESCO and PESCO with 5.8 and 3.25 hours respectively. In comparison to 2016-17, other distribution companies displayed improvement.

 

The NEPRA report also expresses serious concern that the data submitted by some distribution companies was not based on facts, which was verified by its team during visits to different distribution companies and subsequent actions were also initiated. Furthermore, the data itself indicated surprising results, which were hard to believe. For example, the IESCO reported that an individual customer experienced only 0.04 interruptions on average during the year 2017-18, which was beyond the factual position.

 

The data provided by the distribution companies showed that except for GEPCO, LESCO and KE, all other companies did not receive even two complaints on average per complaint centre a day. It was not rational as it was verified by a NEPRA team during visits to the distribution companies. The GEPCO reported the highest fatal accidents i.e. 29 in 2017-18, followed by LESCO, IESCO, MEPCO, SEPCO and HESCO with 21, 20, 17, 17 and 15 respectively. The power regulator noted with serious concern that the companies had failed to adhere to the safety procedures and develop a safety culture.

 

The government has set a target to get rid of circular debt by December 2020, which looks very ambitious after the NEPRA report. In December 2018, the World Bank had estimated about $18b annual loss to the Pakistan economy due to an inefficient power sector. The Economic Coordination Committee (ECC) of the Cabinet has constituted a three-member committee, headed by Dr Ishrat Hussain, to review the Power Division’s proposal of Sukuk-II of Rs 200 billion meant to clear some part of circular debt. It noted that outstanding liabilities of the power sector are increasing due to various reasons, like less than regulatory benchmarked performance (both loses and recovery), non-realisation of subsidies, delayed determinations of tariff for end-consumers (court stays), and non-payment by provincial governments etc. Another major factor contributing to the build-up of circular debt during the last financial year has been delays in quarterly adjustments determined by the regulator.

 

It is a fact that successive governments have intentionally avoided fixing the inefficient and corrupt power supply chain because of political expediencies. Although it must be credited for ramping up generation in its five-year tenure as well as the establishment of three efficient RLNG-based power plants, yet the last PML-N government willfully chose to ignore the constant warnings of experts that building capacity without carrying out power sector reforms would only increase consumer prices and the state’s liabilities in the form of inter-corporate debt. The state-owned oil-based generation plants are least efficient and in dire need of new investment. Professional management is required to eliminate the losses. The country needs to move away from inefficient, centralised power distribution from the national grid to smaller, smarter grids. The smarter generation-distribution model will make it easier for the authorities to find partners in the effort to improve governance of the state-owned power companies.

The power sector can make or break the economy. Unless radical policies are implemented to create an independent, competitive energy market in the country, the government will continue to hike electricity prices and borrow more to pay the producers for the system inefficiencies of the sector without any significant increase in generation.

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